Meet “Dirty Dozen” Tax Break #6: Tax Credits for Nonconventional Fuels

Blog Post by: Benjamin Landy , on December 17, 2012

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These "dirty dozen" are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the "Dirty Dozen" expenditures homepage as we reintroduce each of the "dirty dozen" and explain why it's long past time to eliminate these costly tax breaks.

Federal subsidies for nonconventional fuels waxed and waned for many years with the politics of the times before expiring at the end of 2011, saving the Treasury billions of dollars annually. These subsidies, which made TCF's 2002 list of the "dirty dozen" tax breaks, included the alternative fuel production credit, alcohol fuel credit, partial exemption from excise taxes, and many others; including subsidies for biodiesel, agri-biodiesel, renewable diesel, and other incentives.

The decision to allow these provisions to expire in 2011 (after a temporary extension as part of the Tax Relief Act of 2010) was a major step forward for both energy policy and comprehensive tax reform. But many costly subsidies for the energy sector remain. The "percentage depletion" deduction still costs over $1 billion annually, as does the deduction for "intangible" drilling costs for oil and gas, and the deduction for exploration and development costs for coal. A bill that would have eliminated these and other tax breaks, New Jersey Senator Robert Menendez's Repeal Big Oil Tax Subsidies Act, failed to overcome a Republican filibuster on a 51-47 vote last March.

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